Wall Street closes at a record for the first time since end of January
The drop in energy prices has triggered a clear shift in FX. Moves in EUR/AUD and GBP/AUD suggest the Aussie’s terms of trade tailwind may be fading.
- Trump delays Iranian strikes, easing immediate escalation risk
- Energy prices reverse sharply, shifting macro backdrop
- Trend breaks emerge across AUD crosses
- Signals point to consolidation rather than a sustained reversal
Energy Move Drives FX Reassessment
Donald Trump delivered another classic ‘TACO’ backflip on Monday, announcing a five-day pause on planned attacks on Iranian power infrastructure due to apparent progress in negotiations between the two sides. The move sparked a sharp reversal in crude and broader energy markets, taking some of the heat out of a trade that had driven clear outperformance in commodity-linked currencies, including the Aussie, against major energy importers.
Source: TradingView
The news helped spark or cement trend breaks across several AUD crosses, pointing to a potential unwind in the terms of trade story that dominated FX since the conflict began, when importers like Japan and Europe underperformed exporters such as Australia as supply risks intensified.
In an early morning Truth Social post ahead of the US market open, Trump pointed to “productive” discussions with Iranian officials, even as Tehran denied direct talks and dismissed the claims as market manipulation. Intermediaries appear to be passing messages between the two sides, but publicly key sticking points remain. Iran continues to demand an end to US and Israeli military action, along with security guarantees and compensation, none of which have been acceptable so far.
However, in delaying the strikes, it suggests Trump is reluctant to take the nuclear option, excusing the pun, that risks a broader escalation where Iran targets energy and critical infrastructure across the Gulf. That’s the real left tail risk, a prolonged supply shock that could keep energy prices elevated for years, not months.
That timeline clashes with the US political cycle. With midterms approaching and gasoline prices already sitting at multi-year highs, having doubled since early January, a sustained spike would be difficult to absorb, both economically and politically.
For traders, even without confirmation that negotiations are taking place, it was enough to spark a decent relief rally. Even without a deal, the perception is that escalation risk may have peaked, helping flip the relative performance story, setting up a directional reassessment in AUD crosses.
EUR/AUD Technical Outlook
Source: TradingView
The trend break in EUR/AUD arrived last Friday, coinciding with an escalation in tensions and a sharp lift in energy prices, differentiating this move from those seen earlier in the conflict. That’s a decent tell the terms of trade story may have run its course, with attention perhaps now flipping back to the broader impact on the global economy, something the Aussie is historically very sensitive to.
This move looks more likely to stick relative to the false breakout seen earlier in the trend, especially with RSI (14) pushing back above 50, indicating downside pressure has reversed. MACD remains in negative territory for now, but it has crossed the signal line and is trending higher. It suggests directional risks are now far more balanced, building confidence that this break may hold.
However, if this is the start of a new trend, it’s more likely to be sideways than higher given the negative slope in the 50, 100 and 200DMAs, with price still well below all three. Any upside is likely to be hard won in the near term.
On the topside, 1.6630 has acted as both support and resistance, making it the first level of note, followed by the 50DMA and 1.6800. On the downside, 1.6425 acted as support earlier this month and may do so again if retested. 1.6164 is the next key level below, marking the lows from two weeks ago.
GBP/AUD Technical Outlook
Source: TradingView
A very similar setup is evident in GBP/AUD, with a clean break of the downtrend early last week followed by a string of bullish candles, pushing the price above former resistance at 1.9100. That level may now flip to offering support on any near-term pullback, with 1.9000 and the March 11 low of 1.8696 other support levels of note below.
On the topside, 1.9300 capped advances for a period during February and, coinciding with the 50DMA, looms as the first real test for bulls. 1.9592 and the 100DMA are the next levels to watch above.
RSI (14) has been trending higher for some time and is now above 50, pointing to a gradual build in upside momentum. MACD hasn’t fully confirmed the move, but it has crossed the signal line and is turning higher while still in negative territory, leaving the overall momentum signal more neutral than bearish.
Like EUR/AUD, upside may be hard won in the near term given the broader trend backdrop, favouring sideways trade rather than the start of a more sustained bullish move.
AUD/JPY Technical Outlook
Source: TradingView
A clear break lower on Monday saw trend support dating back to mid-October give way, with the AUD/JPY pair closing beneath 111.20, a level that has acted as both support and resistance in the past. That now becomes the reference point for traders to watch, offering a level to build trades around on either side.
The pair has resembled a ball held underwater in recent years, with attempts to push it lower repeatedly failing. It’s hard to argue that’s suddenly changed just because of this break, so it makes sense to keep an open mind when assessing setups, especially with RSI (14) and MACD both offering little in the way of directional bias.
The broader backdrop also leans against a sustained downside move, with all the key moving averages still sloping higher, suggesting large-scale weakness may be unlikely in the near term.
Below current levels, 110 and the 50DMA are the key areas to watch, with a break of the latter opening the door to a retest of the February low at 107.70. On the topside, 113.00 capped gains earlier this month, with 114.00 the next key level. A break of that level would point to a resumption of the broader bullish trend.